Medicare Levy Surcharge - Defence Force member's dependant not covered by private patient hospital cover

Is the taxpayer, a member of the Australian Defence Forces, liable to pay the Medicare levy surcharge under section 8D of the Medicare Levy Act 1986 (MLA) when their spouse does not have private patient hospital cover?

Yes. The taxpayer is liable to pay the Medicare levy surcharge under section 8D of the MLA when their spouse is not covered by private patient hospital cover.

The taxpayer is a full-time member of the Australian Defence Forces and is entitled to free medical treatment.

The taxpayer is married and has no other dependants.

The taxpayer's spouse is a full-time employee in a private company, does not have private patient hospital cover and pays the Medicare levy.

The taxpayer's spouse is not a prescribed person as defined by subsection 251U(1) of the Income Tax Assessment Act 1936 (ITAA 1936).

During the year of income the taxpayer's income for surcharge purposes exceeds the minimum threshold set in subsection 8D(3) of the MLA.

The sum of the taxpayer's and the spouse's income for surcharge purposes exceeds the family tier 1 threshold. No reportable fringe benefits were received.

Paragraph 251S(1)(a) of the ITAA 1936 provides that a Medicare levy is levied at the rate applicable in the MLA on the taxable income of a person who at any time during the year was an Australian resident.

Section 8D of the MLA provides that the amount of Medicare levy payable by a married person is increased, if for the whole of the year of income: • the sum of the person's and their spouse's income for surcharge purposes exceeds the person's family tier 1 threshold • the person's income for surcharge purposes exceeds the threshold amount specified in subsection 8D(3) of the MLA • they, or at least one of their dependants, are not covered by an insurance policy that provides private patient hospital cover, and • they are not a prescribed person as defined in section 251U of the ITAA 1936.

This increase in the amount of Medicare levy payable is commonly known as the Medicare levy surcharge. The rate of surcharge depends upon the amount of income for surcharge purposes.

The family tier 1 threshold is specified in section 22-40 of the Private Health Insurance Act 2007 (PHIA 2007). The taxpayer's and their spouse's combined income for surcharge purposes exceeds the taxpayer's family tier 1 threshold.

A dependant of a taxpayer is defined in subsection 251R(3) of the ITAA 1936 to include a person who is an Australian resident spouse of the taxpayer and the taxpayer contributed to their maintenance. A person who resides with another person is presumed to contribute to the maintenance of that other person (subsection 251R(6) of the ITAA 1936).

Where a person is a dependant of a taxpayer and pays the Medicare levy on their taxable income in the year of income, subsection 251R(6B) of the ITAA 1936 provides that the person will be deemed not to be a dependant of the taxpayer.

However, for the purposes of the Medicare levy surcharge, section 251V of the ITAA 1936 provides that subsection 251R(6B) of the ITAA 1936 does not apply.

Therefore, the taxpayer's spouse is considered to be the taxpayer's dependant for Medicare levy surcharge purposes under subsection 251R(3) of the ITAA 1936 although they pay the Medicare levy on their taxable income.

A 'prescribed person' is defined in paragraph 251U(1)(a) of the ITAA 1936 to include a person who was a member of the Defence Force and was entitled to free medical treatment, or a relative of a member of the Defence Force who was entitled to free medical treatment. However, a person will not be a 'prescribed person' if any of their dependants are not prescribed persons (subsection 251U(2) of the ITAA 1936).

The taxpayer's spouse is considered to be the taxpayer's dependant for the purposes of the Medicare levy surcharge. The taxpayer's spouse is not a 'prescribed person' as defined by subsection 251U(1) of the ITAA 1936. Therefore the taxpayer will not be considered a 'prescribed person' as defined in paragraph 251U(1)(a) of the ITAA 1936 for the purposes of determining the Medicare levy surcharge.

The taxpayer is married and the taxpayer and spouse's combined income for surcharge purposes exceeds the family tier 1 threshold. The taxpayer's spouse is considered to be a dependant of the taxpayer for the purposes of the Medicare levy surcharge. The taxpayer's spouse is not covered by appropriate private patient hospital cover. The taxpayer is not considered to be a 'prescribed person' for the purposes of the Medicare levy surcharge as they have a dependant who is not a 'prescribed person'. The taxpayer is therefore liable for the Medicare levy surcharge on their taxable income under section 8D of the MLA. Note: The Medicare levy surcharge on a taxpayer's taxable income applies from the 1998 income year onwards and on reportable fringe benefits from the 2000 and later years of income.

Although the spouse of the taxpayer is a dependant for the purposes of the Medicare levy surcharge, they will not be a dependant for the purposes of the imposition of the Medicare levy. The spouse is not a dependant of the taxpayer for Medicare levy purposes because the spouse pays the Medicare levy on their taxable income (section 251R(6B) of the ITAA 1936). The taxpayer, as a 'prescribed person', will therefore be entitled to full exemption from the Medicare levy under section 251T of the ITAA 1936.

Date of Amendment Part Comment 1 May 2015 Facts Updated facts to align with changes to section 8D of the MLA Reasons for decision Updated to align with changes to section 8D of the MLA Removed reference to Section 3A of MLA and replaced with section 22-40 of the PHIA 2007

Date of Amendment | Part | Comment

1 May 2015 | Facts | Updated facts to align with changes to section 8D of the MLA

Reasons for decision | Updated to align with changes to section 8D of the MLA Removed reference to Section 3A of MLA and replaced with section 22-40 of the PHIA 2007